Wednesday, September 20, 2006

Brain Aerobics

Procedural contortions are just mental exercise, right?

Untangling the backstory of the In re First Horizon Pharmaceutical Corp. Sec. Litig. provided exactly that.

But first, the newsworthy angle.

The United States Court of Appeals for the Eleventh Circuit issued an opinion earlier this week vacating the District Court's order dismissing the litigation, and ordered the District Court to allow the plaintiffs to replead their complaint.

The 11th Circuit further determined that:
securities claims without a fraud element [e.g. Section 11] must be pled with particularity pursuant to Federal Rule of Civil Procedure 9(b) when that nonfraud securities claim is alleged to be part of a defendant's fraudulent conduct.
The Court thus joined the majority of circuits to address the matter. See e.g. Cal. Pub. Employees' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 161 (3d Cir. 2004); Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004); Lone Star Ladies Inv. Club v. Schlotzsky's, Inc., 238 F.3d 363, 368 (5th Cir. 2001); In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404-05 (9th Cir. 1996).

Now for the backstory.

On September 29, 2004, Judge J. Owen Forrester of the United States District Court for the Northern District of Georgia dismissed, without prejudice, the securities fraud class action complaint pending against First Horizon Pharmaceutical Corporation (n/k/a Sciele Pharma, Inc.) (Nasdaq: SCRX).

Judge Forrester granted the plaintiffs an opportunity to amend their class action lawsuit provided that the plaintiffs paid all of the defendants' fees and costs associated with filing the motions to dismiss the class action lawsuit.

Plaintiffs did not file a second amended complaint as permitted, but instead filed a motion asking Judge Forrester to reconsider his September 29, 2004 order and lift the condition that they pay defendants' fees and costs before further amendment.

On June 22, 2005, the District Court denied plaintiffs' motion and gave them another opportunity to amend if they pay defendants' fees and costs. Once again, plaintiffs chose not to file a second amended complaint, and instead filed an appeal to the Eleventh Circuit.

On an interesting side note, at the outset of the litigation, First Horizon issued a press release, announcing, you guessed it:
that it intends to vigorously defend itself against a securities class action lawsuit recently filed against the Company
The Court had previously appointed Thomas Sheahan, Richard G. Bartels and Roy Latourette Jr., as lead plaintiffs and three firms that no longer exist - Chitwood & Harley, Milberg Weiss Bershad Hynes & Lerach LLP, and Cauley Geller Bowman & Coates LLP - as lead counsel.

Daily Trivia
: Sciele employs about 700 people, but 525, or 75% of those employees are in sales. No wonder the company describes itself as "a pharmaceutical company specializing in sales, marketing, and the development of branded prescription products focused on Cardiovascular/Metabolic and Women's Health."

UPDATE: The 10b-5 Daily has a post on the 11th Circuit's decision here.

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